After a Q2 consolidation, the S&P 500 (the main equity index on Wall Street) has been trending higher throughout the summer months. Traders have been seeing the positives, seemingly trading bad news as being good for indices (because it could mean the continuation of loose Federal Reserve monetary policy), but also seeing good news as good (seemingly because it is good for sentiment). The Federal Reserve chair Jerome Powell could have changed this in his Jackson Hole speech. However, a cautious tone allows for more of the same for recent trends on indices. 

  • A cautious Fed suggests a later and/or more gradual taper along with less aggressive future rate hikes.
  • The long uptrend on S&P 500 futures since October shows little sign of stopping
  • Elsewhere existing outlooks continue on German DAX and FTSE 100.

Powell perpetuates the outlook for looser 

Fed chair Powell’s speech at Jackson Hole was a key moment for indices. If Powell had been hawkish (laying out plans for the taper to begin perhaps as early as October) then there could have been a taper tantrum. This would have then turned markets into reverse and undone a summer’s worth of gains.

Whilst a taper tantrum could still be seen later this year, Powell was cautious on monetary policy. The taper might begin later this year. Also, he is suggesting that interest rate hikes are not linked to the taper. This suggests that:

  • An October taper of the $120bn asset purchases per month is now highly unlikely. What seems more likely would be December at the earliest, or even January 2022.
  • The pace of reduction could also be more gradual when it happens. Maybe $10bn/$15bn per month reduction (to end in either 12 or 9 months), rather than $20bn per month (to end in 6 months).
  • Conventional tightening of monetary policy (interest rate rises) could be pushed further out. Rate hikes could be a 2023 story rather than potentially 2022 as could previously have been seen. 

Indices have been buoyed by this, with underlying support to continue the outlook of positivity, at least on Wall Street anyway.

Only a hugely strong jobs number would likely change views now

This Friday’s payrolls report will now seemingly need to be an absolute stormer to change the Fed onto a more aggressive path once more. That is unlikely after the much lower than expected ADP Employment Change (a private payrolls indicator that comes out two days before the government’s labor report). ADP was 374,000 jobs versus 613,000 that had been forecast. 

There would need to be a repeat of last month’s hugely strong report. For July’s jobs report, the headline jobs growth was 943,000 along with a much lower than expected unemployment rate. Consensus expectations sit at 750,000 jobs this month. There may need to be north of +1 million jobs growth to change expectations going into the June FOMC meeting. 

S&P 500 futures continue to trend strongly higher

Throughout the summer we have talked about the strength of the uptrend on Wall Street. There have been three near-term corrections (lasting just a few days) on the S&P 500 futures (MT5 code SP500ft) since June. However, they have been repeatedly bought into for the next push to all-time highs. Unless there is a huge payrolls number tomorrow, we see no reason for this not to continue.

S&P 500 futures

We will continue to look for near term weakness as a chance to buy. The first real band of breakout support comes in at 4462/4498. Any unwind on the Relative Strength Index (RSI) back towards 50 helps to renew the upside potential for the next run higher. Tuesday’s all-time high of 4542 is now the initial resistance but should be breached in due course.

European markets continue to lag with gains

The strength of Wall Street has been where all the bulls have seemingly been migrating too. Elsewhere, the major European indices have been far less impressive. However, there still tends to be a positive bias.

For the past six months, the German DAX (MT5 code: GER30) is still trading in a broad but relatively shallow uptrend channel. The gains have been coming but it has been something of a struggle. Despite this, the break above 15,700/15,800 has been a key move in recent weeks and opens for continued upside. Momentum is primed for further upside in due course and we favour a retest of 16,000 and beyond. Below 15,600 would be disappointing now.

German DAX

On FTSE 100 (MT5 code: UK100) gains have been even more of a struggle to come by. Once more there is a positive bias and arguably an uptrend channel. However, since mid-May, the market has effectively just gone sideways. We favour buying into weakness, with initial support around 7060. However, it is a sluggish market and a drive through 7160/7235 resistance is proving very hard for the bulls.

FTSE 100


With a cautious Federal Reserve, the path of least resistance continues to be higher for indices. We continue to favour Wall Street over the DAX, whilst FTSE 100 is a laggard.